2001 (2) TMI 1029 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility of the petitioner for exemption from sales-tax under the Rajasthan Sales-tax Incentive Scheme for Industries, 1987.
2. Determination of whether the petitioner's activity constitutes "manufacturing" under the Rajasthan Sales-tax Act, 1954.
3. Applicability of Item 19 and Item 6 of Annexure B to the Incentive Scheme of 1987.
4. Interpretation of the term "repacking" in the context of the petitioner's activities.
5. Relevance of the Gujarat High Court decision in State of Gujarat v. Kosan Gas Company.

Detailed Analysis:

1. Eligibility for Sales-Tax Exemption:
The petitioner, licensed to fill and sell LPG as a parallel marketer, applied for an eligibility certificate for sales-tax exemption under the Rajasthan Sales-tax Incentive Scheme for Industries, 1987. The District Level Screening Committee initially rejected the application, citing the petitioner as an "ineligible industry" under Item 19 of Annexure B. The Rajasthan Taxation Tribunal upheld this decision, stating that the petitioner was engaged in repacking rather than manufacturing.

2. Manufacturing Process:
The Tribunal concluded that the petitioner's process did not constitute manufacturing, as no new commercially distinct commodity was produced. The petitioner argued that the bulk LPG could not be used by consumers without undergoing a manufacturing process involving mixing with air and filling into marketable cylinders. The Court agreed with the petitioner, stating that the process of making LPG usable for consumers by mixing it with air and filling it into cylinders constitutes manufacturing under the Rajasthan Sales-tax Act, 1954.

3. Applicability of Item 19 and Item 6 of Annexure B:
The District Level Screening Committee's rejection was based on Item 19, which pertains to "distilling, storing, bottling, blending or brewing of potable liquor/alcohol." The Court clarified that this item is specific to processes involving potable liquor/alcohol and does not apply to LPG bottling. The Tribunal's reliance on Item 6, which includes "repacking of any goods," was also deemed incorrect. The Court held that the petitioner's activity did not merely involve repacking but included a manufacturing process essential for making LPG marketable.

4. Interpretation of "Repacking":
The Tribunal's finding that the petitioner's activity was mere repacking was overturned. The Court emphasized that the process of making LPG marketable by mixing it with air and filling it into cylinders is a manufacturing activity, not repacking. The Court stated that packing essential for marketability is part of the manufacturing process, not just a distribution activity.

5. Relevance of Gujarat High Court Decision:
The Tribunal had relied on the Gujarat High Court's decision in State of Gujarat v. Kosan Gas Company, which dealt with transferring LPG from bulk containers to smaller ones. The Court found this decision inapplicable, as the facts differed. The Gujarat case did not consider the mixing of LPG with air, a crucial aspect of the petitioner's process.

Conclusion:
The petition was allowed, and the orders of the Taxation Tribunal and District Level Screening Committee were set aside. The District Level Screening Committee was directed to reconsider the petitioner's application in light of the Court's observations, recognizing the petitioner's activity as a manufacturing process necessary for making LPG marketable.